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Eastern Gateway Community College can no longer request federal student financial aid funds before disbursing them, according to a U.S. Education Department letter sent on Tuesday to Michael Geoghegan, the college's president. The increased scrutiny follows an Education Department decision last month that restricted the college from disbursing Pell Grants to new students accepted for enrollment in its free online program for union members this fall.

In the most recent development, the Education Department transferred Eastern Gateway to its Heightened Cash Monitoring 2 list out of concern for its ability to properly manage federal student financial aid funds authorized by Title IV of the Higher Education Act. Institutions on this list may disburse federal financial aid dollars from their own accounts, after which they may be reimbursed upon providing proper documentation.

The Education Department's letter attributed the decision to "serious and systemic issues" found during a review of Eastern Gateway's program, including the earlier problems with its free online program, problems documenting specific student beneficiaries of government funds, "serious discrepancies" in general accounting records, and key employees who were paid by both the institution and its servicer. The letter also said Eastern Gateway provided documents containing inconsistencies regarding the institution's compliance with federal rules.

Geoghegan said in a letter to Eastern Gateway faculty and staff that "this action does not impact the college's ability to receive Pell Grants [for] students for tuition and fees" and has "no impact on the students themselves." He also said there was "no truth to any rumor that ongoing commitments to payroll and payables will not be met."